The greenwaching testing of Green Sukuk in MENA and ASEAN countries

This study investigates the potential greenwashing phenomena associated with green sukuk issuances across MENA and ASEAN countries from 1990 to 2022. Drawing on stakeholder theory, signalling theory, and agency theory, we explore whether green sukuk genuinely reflect environmentally responsible financing or are misused to attract investors through misleading green claims.Our empirical analysis examines the bidirectional relationship between environmental and energy indicators (e.g., pollution, carbon emissions, non-renewable energy use, renewable energy adoption) and both the issuance volume and coupon rates of green sukuk.The findings reveal a widespread pattern of greenwashing in all countries studied—except Turkey, where issuers exploit environmental signals to issue green sukuk while diverting funds to non-ecological projects, often offering high coupon rates to offset agency risks and information asymmetry. This practice undermines the legitimacy of green sukuk from both Islamic finance and environmental perspectives rejecting the role of the stakeholder’s theory leading to having an ecological conscience toward environment. In contrast, Turkey demonstrates a credible commitment to environmental responsibility, with green sukuk linked to lower pollution, reduced emissions, and increased renewable energy use, validating stakeholder theory and preserving issuer legitimacy. These results call for stricter standards and greater transparency in green sukuk markets to ensure alignment with true green principles.